Motley Fool: Boot it up

Shares of Western-style apparel retailer Boot Barn (NYSE: BOOT) have risen nearly 200% during the last five years. The company has more room to run, and with its stock recently trading at a price-to-earnings (P/E) ratio below 13, its valuation is attractive.

The stock recently dropped by 11% after the company reported lower-than-expected revenue for its fourth fiscal quarter (which ended April 1) and tempered growth projections. But revenue still came in 11% higher than in the prior year period.

Boot Barn’s growing popularity isn’t a recent fad, but a long-term trend. Same-store sales have increased in most of the past 11 years. Boot Barn’s portfolio of exclusive brands, meanwhile, made up about 34% of the company’s sales in fiscal 2023, up from just 3% in fiscal 2012. Exclusive brands can keep customers coming back to stores since they can’t find these items elsewhere.

More important, Boot Barn’s own brands have a much higher gross profit margin than the third-party brands that it also sells.

Profits can keep growing for Boot Barn if sales of exclusive brands continue to increase. And management has ambitious plans, intending to open more than 500 new locations over the next decade, which would more than double the size of the company. (The Motley Fool has recommended Boot Barn.)

Ask the Fool

Q. Every few years you hear about the debt ceiling. Why is it so bad if it’s not raised? – W.W., Columbus, Ohio

A. The debt ceiling is a limit, imposed by Congress, on how much outstanding debt our nation can have.

The United States government takes in revenue from taxes and other sources (but mostly taxes); it then uses this money to pay bills and fund the country’s operations, paying for things such as the military, Medicare, Social Security, transportation, job training, scientific research, infrastructure upkeep and much more. When there’s a shortfall, the government can borrow money – such as by issuing bonds, bills and notes.

If the limit is not raised, then the U.S. might default on some of its financial obligations. Many experts believe that a default would be a global catastrophe, damaging America’s economy and reputation, and potentially resulting in a recession.

Q. How should I invest money I’m saving for a down payment on a home? – V.H., Huntsville, Alabama

A. It depends on when you expect to buy your home. Over long periods, it’s hard to beat the stock market for increasing the value of your portfolio. The stock market can be volatile, though, so it’s best to not invest in it with dollars you expect to need within, say, five years – or even 10 years, to be more conservative. You don’t want to have to withdraw your down payment right after the stock market has temporarily dropped.

If your expected home purchase will happen in the next few years, invest that down payment in safer places, such as certificates of deposit, or CDs, money market accounts or short-term bonds. You can find great interest rates at our sister site, TheAscent.com.

My dumbest investment

I shouldn’t call this my most misguided investment, as it did well, but the reasoning behind the investment was certainly silly.

Years ago, I had gone to a sci-fi convention with my niece. As we walked through it, she noticed a booth for eBay. She explained that she bought toy horses on the site and sold some of her old toys there, too. Based on her enthusiasm, I bought three shares.

Lucky for me, the stock took off. It split, turning my three shares into six, and I sold three, getting back my original investment. I let the other shares ride, and they did quite well – especially after eBay bought PayPal (which it later spun off). – D.M., online

The Fool responds: Your process wasn’t completely silly. It can make good sense to ferret out promising investments by noticing products and services that lots of people seem to be using and loving. But it’s smart to follow up the inspiration with some research into the company:

Is it healthy (ample cash, relatively little debt)?

Is it growing? And does it have sustainable competitive advantages – like eBay’s sizable marketplace, which attracts sellers and buyers alike?

Also, it would have been important to make sure the shares weren’t overvalued; ideally, you want to buy shares for less than they’re worth.